Saturday, July 20, 2024

Economist Steve Hanke: Escalating U.S. Dollar Weaponization Fuels Unprecedented Central Bank Gold Acquisitions

Steve Hanke, a distinguished professor of applied economics at Johns Hopkins University, has recently delved into the surge in central bank gold acquisitions, attributing it to the policies pursued by the United States. In a comprehensive interview, Hanke expounded on the motivation behind these acquisitions, highlighting the weaponization of fiat currencies, notably the U.S. dollar, as a key driver compelling countries to embrace gold as a refuge.

Steve Hanke’s Assessment of the Surge in Central Bank Gold Purchases Amid U.S. Dollar Weaponization

Renowned for his stance against Bitcoin and his advocacy for dollarization, Steve Hanke, Professor of Applied Economics at Johns Hopkins University, provided his insights on the resurgence of gold as a preferred reserve currency for central banks. Speaking in a recent interview on Jesse Day’s Commodity Culture, Hanke articulated his perspective on the future role of gold as a reserve asset and elucidated how U.S. policies have contributed to the notable upswing in central bank gold acquisitions.

Hanke posits that recent escalations in U.S. sanctions, the weaponization of the U.S. dollar, and a climate of pervasive uncertainty have collectively spurred central banks to amass gold reserves at an unprecedented rate.

In his own words:

“The exact trajectory of central bank actions remains unpredictable, but the prevailing trend is unmistakable—a substantial increase in central bank gold acquisitions. This phenomenon is primarily driven by mounting uncertainty and the heightened politicization within the fiat currency domain.”

As a consequence, central banks that had hitherto played a marginal role in the gold market have now emerged as significant purchasers. This trend is particularly pronounced among nations that Hanke categorizes as being in a state of “de-dollarization,” seeking to diminish their reliance on the U.S. dollar due to the burgeoning imposition of sanctions.

An Optimistic Outlook

Hanke underscores that since the events of 9/11, the utilization of sanctions has been steadily escalating, with the Biden administration taking these measures to new heights. Hanke strongly condemns this trend as “utter folly,” pointing out that it has incentivized countries like China and Poland to augment their gold acquisitions.

Even Poland, a nation not historically associated with substantial gold holdings, has amassed an impressive 105 tonnes of gold year-to-date. This aligns with Poland’s strategic goal of maintaining 20% of its reserves in gold, as articulated by National Bank of Poland (NBP) President Adam Glapiński.

Given this backdrop, Hanke expresses a bullish outlook on the future of gold, asserting that from a fundamental standpoint, gold exhibits robust strength. However, he is quick to clarify that he does not align himself with the fervent gold enthusiasts, such as Peter Schiff, another prominent economist.

What are your thoughts on the prospects of gold markets amid the ongoing de-dollarization trend? We invite you to share your insights in the comments section below.

Frequently Asked Questions (FAQs) about Dollarization

What is the main reason behind the surge in central bank gold purchases mentioned in the article?

The surge in central bank gold purchases can be attributed to the weaponization of fiat currencies, particularly the U.S. dollar, as well as the escalating use of sanctions by the United States. This has prompted countries, especially those in “de-dollarization mode,” to seek refuge in gold as a hedge against uncertainty.

What role has Professor Steve Hanke played in discussing this phenomenon?

Professor Steve Hanke, a renowned economist and Bitcoin critic, has shared his insights on the increase in central bank gold acquisitions. He has emphasized how U.S. policies, including the heightened use of sanctions, have influenced this trend and the global financial landscape.

How has the politicization of fiat money affected central bank behavior?

The politicization of fiat currency has led to a climate of heightened uncertainty, prompting central banks to diversify their reserves. Many central banks that were previously not active participants in the gold market have now become significant buyers due to their desire to reduce exposure to the U.S. dollar and its associated risks.

What is the outlook for gold markets according to Steve Hanke?

Steve Hanke maintains an optimistic outlook for gold markets, citing their fundamental strength. He believes that, despite not being a fervent gold enthusiast like some other economists, gold’s role as a reserve asset is likely to continue to gain prominence in the context of ongoing de-dollarization efforts.

Can you provide an example of a country mentioned in the article that has increased its gold purchases due to U.S. policies?

Poland is cited as an example in the article. Although not traditionally a major gold buyer, Poland has accumulated 105 tonnes of gold year-to-date, in line with its policy of holding 20% of its reserves in gold. This accumulation is attributed to concerns related to the U.S. dollar’s weaponization and the increasing use of sanctions.

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